I'm director of the Reynolds Center for Business Journalism at the Cronkite School at Arizona State. I'm also author of the Forbes eBook Curbing Cars: America's Independence From The Auto Industry. I was Detroit bureau chief for the New York Times, and led Changing Gears, a public media project that studied the industrial Midwest. E: vmaynard@umich.edu T @mickimaynard @curbingcars

Four Unanswered Questions From The GM Recall Crisis

General MotorsGeneral Motors managed to weather its first quarter recall crisis by posting a slim profit Thursday. The company earned $125 million despite $1.3 billion in expenses to pay for recalling nearly 2.6 million vehicles worldwide, and other recall related costs.

The results were an 86 percent decline from its year-ago performance, but avoided GM’s first quarterly loss since 2009. They had to be a relief for CEO Mary Barra, who held her first investor conference call since Congressional hearings were held into the GM recall crisis, and her second since becoming CEO Jan. 15.

She had a much easier time with analysts than the intial grilling she faced before Congressional committees last month. However, it looks like GM may be in the spotlight again on Capitol Hill.

Rep. Fred Upton, a Michigan Republican who chairs the House Energy and Commerce Committee, told WOOD-TV in Grand Rapids that he plans another hearing. It isn’t clear whether Barra would again be asked to testify. “Whether she comes back or somebody else, there will certainly be another hearing down the road once we get a little bit more information,” Upton said, according to the Detroit News. “We’ll see where it takes us.”

Barra spent a good deal of time on Thursday’s conference call discussing GM’s response to the recall crisis, and emphasizing that the company is making an extensive series of changes throughout its organizational structure as a result. However, there are still unanswered questions surround the GM recall situation.

1) Will GM offer compensation to victims? Maybe. GM has retained Kenneth Feinberg, who oversaw compensation in cases such as the 9/11 attacks and the British Petroleum oil spill in the Gulf of Mexico, to determine whether it will pay restitution. Thus far, ignition defects on Pontiac, Saturn and Chevrolet small cars have resulted in 13 deaths and 31 crashes.

Barra said she expected a recommendation from Feinberg in 45 days, meaning sometime around mid-June. Company officials have declined to predict an outcome. On Thursday, Barra said the company was considering its “civic duty” in the situation.

There has been some confusion about the likelihood of GM compensation, given the company’s recent court moves. According to the Detroit Free Press, GM has asked a U.S. Bankruptcy Court in Manhattan to rule that its legal shield against pre-bankruptcy liabilities will allow it to avoid compensating owners of recalled vehicles for the reduced value of their vehicles.

But the company’s chief financial officer, Chuck Stevens, said lawyers have not asked the court to prevent victims from seeking compensation. “That’s for economic loss and not related to the families of the victims,” Stevens said, according to the Free Press. “That seems to be a nuance that gets lost.”

2) When will all the cars be fixed? Most by fall. GM began shipping replacement parts to dealers earlier this month and is working with its supplier, Delphi, to ramp up production of new ignition parts. “We’re doing everything we can do to get parts produced,” Stevens told analysts. Barra said the company’s goal is to produce enough replacement parts by October to fix the majority of the recalled cars.

Thus far, GM dealers have provided 36,000 loaner or rental cars for owners’ use while they wait for their vehicles to be fixed. Barra said dealers “are empowered to put customers in cars if that is the best thing for them.”

GM World Headquarters (Photo credit: RTD Photography)

3) Will GM’s recall expense go up? Possibly. GM’s initial estimate of a $300 million recall expense has been revised upward twice, and is now $1 billion higher than when the recall crisis began. Interestingly, GM did not classify the expense as a special item in its earnings report. That is because recalls are considered a cost of doing business, said GM spokesman Jim Cain.

Given that GM doesn’t yet know how many vehicles will actually be repaired, the cost of producing those replacement parts, or whether any other problems might be discovered, it’s likely that the figure could be revised again in coming months.

One thing to consider is that these are aging cars: the recall dates as far back as 2002. As with any recall, some owners may not take the time to bring their vehicles in to showrooms. GM won’t really have a handle on the situation until farther down the line.

4) Will GM use this as a sales opportunity? Looks like it. Analyst Adam Jonas noted that with owners streaming into GM showrooms to have their car fixed, dealers have a chance to sell those folks a new car. “We do see that as a huge opportunity,” Barra replied. She said dealers are authorized to offer GM’s usual employee discount to the owner of a recalled car or someone in their household.

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